From Venable Law Firm
May 17, 2016
Compensable Time? What Nonprofits Need to Know Regarding Their Non-Exempt Employees
Nonprofit employers already should be alert to the U.S. Department of Labor's (DOL) heavily anticipated changes to the so-called white-collar exemptions under the federal Fair Labor Standards Act (FLSA). Those changes may effectively convert as many as five million employees from exempt to non-exempt status. The time to prepare is now. One area ripe for review is determining what constitutes "compensable time" for your nonprofit's non-exempt employees.
"Compensable time" is any time the employer suffers or permits an employee to perform the principal activity for which the employee was hired for the benefit of the employer. This includes all time worked while at the office, work performed at home, and even work that is performed before or after the regular workday that the employer "suffers or permits" to occur.
Sound simple? It's not. It is a lot more complicated and nuanced than you might think, as discussed below. Here are some of the most common pitfalls and areas of confusion for non-exempt employees in the nonprofit workplace.
1. Off-the-Clock, On-Call, and Unreported Work
Nonprofits must pay each non-exempt employee for all hours worked, including work performed outside the employee's regular workday. For example, a non-exempt employee may report to the office 30 minutes early each day because of a commuter bus schedule. If the employee begins working prior to the start of the regular workday, that time is compensable and should be recorded on the employee's time sheet. The same is true for the non-exempt employee who brings work home or responds to emails from home before or after the regular workday.
Sometimes, even the time an employee is merely "on call" is compensable. An employee who is required to remain on his or her employer's premises, or so close thereto that he or she cannot use the time effectively for his or her own purposes, is considered to be working and must be compensated. For example, a hospital employee who must stay at the hospital in an on-call room but who may sleep, eat, watch television, or read a book may be required to be compensated, whereas a hospital employee who must carry a pager but need not remain at or close to the hospital may not need to be compensated. In sum, whether on-call time is compensable is a case-by-case determination.
Nonprofits should instruct non-exempt employees not to perform work beyond their regular work schedule unless they receive prior approval from their supervisor. Employers take note: you must pay non-exempt employees who work without authorization—but you can discipline them for doing so.
2. Comp Time
Compensatory time, or "comp time," is a system that nonprofits may use in certain limited circumstances to provide time off in lieu of overtime pay to non-exempt employees. Comp time generally is not permitted for private sector non-exempt employees (the rules are different for government employees and exempt employees). However, under federal law, there are two exceptions to the rule prohibiting comp time for private sector non-exempt employees: (1) nonprofits may allow non-exempt employees to take comp time within a single week to avoid exceeding 40 hours worked; and (2) nonprofits may require an employee to take time-and-one-half off (comp time) in one week to offset overtime hours worked in another week within the same pay period.
Importantly, federal law is only half the equation. Nonprofits should check the state law governing comp time in the states in which they have employees because certain states restrict the use of comp time for their state's employees further than federal law. For example, in states like California, overtime is calculated on a daily basis (in excess of 8 hours) rather than weekly basis (in excess of 40 hours). Providing an employee with comp time, even if only to avoid exceeding 40 hours worked in a single week, may not be lawful under state law like California if more than 8 hours were worked in a single day. Moreover, exception (2) above has only been expressly approved by federal courts in certain parts of the country, whereas federal courts in other parts of the country have not considered its legality under the FLSA. Accordingly, nonprofits should proceed with caution when implementing comp time policies for non-exempt employees. Beyond this, successful application of the exceptions requires significant administrative burdens and, in some instances, is illusory. For instance, if an employee works more than 40 hours in the second week of a two-week pay period, compensatory time is not available even under the exceptions.
Employers take note: federal and state departments of labor and the courts take a skeptical view of comp time practices in general. It is crucial that nonprofits considering the use of comp time for non-exempt employees consult with legal counsel to determine what is permissible in the states in which they have employees. For nonprofits that do implement comp time policies for non-exempt employees, it is imperative to keep accurate records that reflect that comp time off is properly calculated and provided to the employee within the appropriate pay period.
3. Seminars, Lectures, Training
Attending lectures, meetings, training programs, and similar activities outside the office is compensable time for non-exempt employees unless all of the following criteria are met:
a. Attendance is outside the employee's regular working hours;
b. Attendance is voluntary;
c. The course, lecture, or meeting is not directly related to the employee's job; and
d. The employee does not perform any productive work during such attendance.
Training is considered related to the employee's job if it is designed to help the employee manage his or her job more effectively. If training is for a different job or a new skill, then it is not job-related, even if the course incidentally improves the employee's performance of his or her regular duties. For example, an IT employee who takes classes toward an accounting degree may incidentally improve his or her organizational skills, but that training is not job-related and is not compensable.
Voluntary attendance at independent training, courses, and college after hours is not compensable time, even if the employer pays or reimburses the employee for part of the tuition through an employee benefit plan. Similarly, if an employer offers a lecture or training session for the benefit of employees, voluntary attendance outside of work hours is not compensable time, even if it is job-related or paid for by the employer. For example, an employer may offer all employees an opportunity to attend a lecture on improving management skills. If it is during work hours, the time spent at the session is compensable time. If the speaker event is outside of regular hours and is completely voluntary, it is not compensable time.
4. Receptions, Dinners, and Social Events
Nonprofits that require non-exempt employees to attend social events (whether the events are sponsored by the employer or by another organization) must treat that time as compensable, even if the employee is not performing his or her regular duties. Nonprofits must clearly communicate to non-exempt employees what is, and is not, required attendance, preferably in writing. Prudent employers train supervisors not to pressure non-exempt employees to attend an event that is not mandatory.
5. Meal Time/Breaks
Bona fide meal breaks of 30 minutes or more are not compensable. To be a bona fide meal break, the non-exempt employee must be relieved of all duties to perform work during the break. Even merely permitting non-exempt employees to work through lunch (when they are not required to do so) must be treated as compensable. For example, a receptionist who is required to answer the telephone while having his or her lunch is not on a bona fide meal break and must be compensated for his or her lunch time. Consequently, non-exempt employees should be required to take daily meal breaks, and such breaks should be required to be taken away from their desks. Rest time of 5 to 20 minutes is common and is compensable work time, as breaks of less than 20 minutes are generally considered to be insufficient to enable the employee to engage in personal pursuits.
6. Interns, Volunteers, and Stipends
The proper treatment of interns and volunteers for employment and tax purposes is a subject unto itself. Whether a nonprofit may utilize unpaid interns, or must pay them as employees, has become a very hot topic in the nonprofit community in recent years. The principal potential liability for the use of unpaid volunteers and unpaid interns is substantially the same—the risk that the individual will be deemed to be an employee for wage payment and tax purposes.
Unpaid interns and unpaid volunteers, if properly classified, are not employees for purposes of many federal laws. This means that a nonprofit that provides for (properly classified) "interns" or "volunteers" generally is not required to pay the individuals wages or provide employee benefits, pay employment taxes to the IRS, or provide other employment-related insurance and tax contributions. However, whether an individual is properly classified as an intern or volunteer is a tricky issue, and requires looking beyond the label and reviewing the underlying relationship between the individual and the nonprofit, looking to both federal and state law and standards.
With respect to volunteers, the DOL's position is that charitable, religious, and other similar nonprofit organizations may properly utilize volunteers where the individual donates his or her services for public service, religious, or humanitarian objectives, usually on a part-time basis and without the expectation of pay. Note that under the FLSA, employees of for-profit, private-sector employers may not volunteer services to such employers. In addition, individuals generally may not volunteer in commercial (e.g., unrelated business) activities run by a nonprofit organization.
Interns, on the other hand, are considered to be "trainees." The DOL has issued guidance stating that in order for interns in for-profit enterprises to be properly classified as non-employees, the intern experience must be for the benefit of the intern and the organization must not derive an immediate advantage from the intern's services, the intern must receive training similar to training that would be provided in an educational environment, the intern must not displace regular workers, the intern must not be entitled to a job at the conclusion of the internship, and there must be an understanding from the beginning that the intern is not entitled to wages. While the DOL suggests in a footnote that "non-profit charitable organizations" will not be subject to the same standards, there is no blanket exclusion for all nonprofit entities, and the best practice among nonprofit organizations has become to follow the DOL guidance for for-profit entities.
Another common area of confusion is when a nonprofit's paid employees wish to perform unpaid volunteer service for the nonprofit. This situation may arise when a non-exempt employee asks to volunteer at a nonprofit-sponsored event after work hours or on the weekend. Individuals who volunteer or donate their services for public service or nonprofits are not considered employees of the nonprofit organizations that receive their service. However, non-exempt employees who perform volunteer work during their normal working hours must be paid, and non-exempt employees who perform volunteer work after normal work hours that is similar to their normal work duties also must be paid. In addition, employers must be vigilant not to expressly or implicitly pressure paid non-exempt employees to volunteer after normal work hours, since "volunteer" work performed under coercion is not bona fide volunteer work and must be compensated. Nonprofit employers must clearly communicate volunteer opportunities to non-exempt employees and should educate managers to avoid any appearance of coercion on attendance at volunteer events.
Lastly, many nonprofits seek to give their volunteers stipends to cover costs associated with volunteer service. The DOL allows volunteers to be paid/reimbursed for out-of-pocket expenses, reasonable benefits, and/or a nominal fee for their service without losing their status as volunteers. The DOL has not specifically defined a financial threshold for what constitutes a "nominal" fee, but generally a nominal fee must not be a substitute for compensation or be tied to productivity. Other relevant factors include the distance traveled and the time and effort expended by the volunteer; whether the volunteer has agreed to be available around the clock or only during certain specified time periods; and whether the volunteer provides services as needed or throughout the year. Incidental or insubstantial stipends are acceptable under DOL regulations.
Travel incidental to employment by a nonprofit falls into two categories: (1) travel as a passenger during non-shift hours where no work is performed; and (2) travel as a passenger during shift hours. As a general rule, a non-exempt employee who travels from home before his or her regular workday and returns home at the end of the workday is engaged in ordinary home-to-work travel that is a normal incident of employment and is not compensable.
Often non-exempt employees are asked to travel longer distances to attend conferences or other out-of-town events. Such travel to a different city is not considered compensable time if (1) the employee is a passenger on an airplane, train, boat, or automobile; (2) the travel is during non-shift hours; and (3) no work is performed during the travel time. For example, an employee who takes a four-hour plane trip to a week-long conference during non-shift hours but performs no work on the plane need not be compensated for this travel time.
On the other hand, if a non-exempt employee travels to an out-of-town conference during shift hours, that employee must be compensated for all of the commuting time to the conference which exceeds that employee's regular commute, whether or not he or she performed any work during the commute. For example, an employee whose regular commuting time is 30 minutes, and who takes a three-hour train trip to a conference in another city during regular shift hours, must be compensated for the two and a half hours that are not part of his or her regular commute, even if he or she performs no work on the train. Finally, it goes without saying that if a non-exempt employee performs work during travel time which is otherwise non-compensable, he or she must be compensated for that time.
8. Employee Time Records
In the event of litigation, courts place the burden on the nonprofit employer to support its position as to an employee's hours worked through adequate contemporaneous records. In the absence of proper records, an employee may substantiate an FLSA claim merely by offering sufficient evidence to permit a reasonable inference as to his or her hours worked. Personal records kept by the employee without the nonprofit's knowledge may be particularly damaging if the nonprofit has no means of proving the hours worked by its employees. In addition, evidence that a nonprofit has directed employees not to record time actually worked will be used against the nonprofit. Nonprofit employers are required to keep track of the hours worked by non-exempt employees. While time clocks are not required, some comparable means of keeping contemporaneous records of hours worked (such as weekly time sheets approved by employees) are essential to protect the nonprofit. Nonprofits should follow federal and state record-keeping requirements meticulously, as good record-keeping practices often make the difference in litigation.
The challenge for nonprofits of properly paying for "compensable time" will only get greater when the upcoming changes to the FLSA's "white-collar" exemptions reclassify millions of employees nationwide as non-exempt, and thus overtime-eligible. Nonprofits, like all employers, have always borne the burden of properly classifying employees and maintaining complete and accurate records of hours worked and wages paid. That burden is about to increase.
Proposed Changes to the FLSA’s White-Collar Exemption Criteria: What Nonprofits Need to Know about the Current Rules, Where Things Are Heading, and How to Avoid Employee Classification Traps and Pitfalls (webinar recording)
U.S. Department of Labor Proposes Sweeping Changes to FLSA Overtime Exemption Criteria: The Implications for Nonprofit Employers (article)